HANOI—The chairman of Vietnam’s state-run oil firm has been fired and
arrested for alleged financial irregularities in his previous job as the
Southeast Asian country presses to accelerate economic reforms and root out
corruption.

Nguyen Xuan Son, 53, was arrested Tuesday on accusations of “deliberately
acting against the State’s regulations on economic management, causing serious
consequences” and “abusing powers while performing official duties,” the
Ministry of Public Security said in a statement Wednesday.

Mr. Son and his lawyers were not reachable for comment. Mr. Son has not been
charged.

Mr. Son was removed Sunday from his position at PetroVietnam, officially
known as Vietnam Oil & Gas Group, by Prime Minister Nguyen Tan Dung, but no
reason was given at the time, according to the government in a statement
released Monday.

The ministry said he was arrested for alleged fraud stemming from his tenure
as chief executive officer at the Ocean Commercial Joint Stock Bank from late
2008 to early 2011. The bank suffered heavy losses and in April was forcibly
taken over by the State Bank of Vietnam, the country’s central bank.

State-media reports said Wednesday that Mr. Son is suspected of being
responsible for the loss of 800 billion dong ($37.2 million) that PetroVietnam
had invested in Ocean Bank. The reports said PetroVietnam and other
shareholders of the bank lost all their investments in the bank after the
takeover. The reports didn’t cite any sources.

The Public Security Ministry said that further investigation is under
way.

PetroVietnam said in a statement Tuesday that chief executive officer Nguyen
Quoc Khanh has been appointed as interim chairman. The company said Wednesday
that the arrest doesn’t affect its operations because the police are
investigating Mr. Son’s activities committed before he joined PetroVietnam. He
was appointed chairman of the oil firm in July 2014.

The arrest comes as Vietnam has been trying to tackle corruption, especially
at government agencies and state-owned enterprises, to attract more foreign
investment into the economy. Vietnam has been the region’s star performer this
year, growing at 6.44% in the second quarter from a year earlier. Still,
Vietnam is facing pressure to reform its SOEs, whose inefficiencies are seen to
be a drag on economic growth, which is estimated at 6.2% this year, down from
an average of 7.3% in the 2000-2010 period.

Speaking to citizens in Hanoi over the weekend, Communist Party General
Secretary Nguyen Phu Trong said that factors contributing to corruption
included loopholes in the legal system and the lack of a mechanism to monitor
the income and assets of officials, according to reports on Vietnam’s state
radio.

Le Dang Doanh, an economist and former government economic adviser, said
that corruption remains widespread despite years of crackdowns.

“When an official is arrested for violating economic regulations, it’s very
likely that it’s all about corruption,” Mr. Doanh said.

Key to Hanoi’s efforts is the restructuring of the banking sector, which is
burdened with high levels of nonperforming loans following a surge in lending
five to seven years ago, mostly to real-estate projects in a market that later
deflated. The prime minister in early 2012 approved a plan, scheduled to run
through 2015, under which the country would speed up the privatization of
state-owned financial institutions through mergers or acquisitions of weak
banks. The central bank has this year taken over three unlisted banks, all of
which were suffering from losses.

As part of the country’s economic reform, Vietnam has also attempted to
restructure state-owned enterprises through privatization, but progress has
been sluggish due partly to inefficiencies of government agencies and a lack of
investor interest. The government said it managed to privatize just 61 SOEs in
the year to June 23, or only 21.1% of the number of those it plans to privatize
this year.

Vietnamese law prescribes a prison term of up to 20 years for anyone found
guilty of violating state economic regulations, while an abuse of power charge
may carry a prison term of up to 15 years.